The Economics of the Olympics

By David Henderson

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There’s a widespread view that holding the Olympics must be a money-losing proposition. One of our frequent commenters, Tom West, expressed that view recently. That view is understandable because losing money has been the norm. When the Olympics were held in Montreal in 1976, for example, the loss amounted to $2 billion, which was $700 per Montreal resident. And remember that that was in 1976 dollars. That loss resulted in a special tax on tobacco because, you know, smokers are such fans of the Olympics.

But there’s no necessity for the Olympics to lose money. The recent case in point is the 1984 Los Angeles Olympics, which actually made money. How so? Because the person who organized them, Peter Ueberroth, president and general manager of the Los Angeles Olympic Organizing Committee, ran the show with a tight fist. Why did he do it? He had to. Here’s how Claudia La Rocco put it, in “Rings of Power: Peter Ueberroth and the Los Angeles Olympic Games” [pdf]Financial History, Spring 2004:

[H]e, along with a majority of Los Angeles citizens, had voted against funding, amending the city’s charter so that taxpayers would not be responsible for the then-expected Olympic deficit.

So Ueberroth did his best not to build new expensive facilities that would be used only for a few weeks but, instead, to use old ones. I’m sure he noticed, as any visitor to, say, Munich (1972) does, that many of the facilities are essentially abandoned. The only new facilities built, according to Wikipedia, were a “swim stadium and a velodrome that were paid for by corporate sponsors.”

Ueberroth got large contributions from a number of corporate sponsors and drove a hard bargain with NBC for broadcast rights. The result? A $215 million “profit” that was donated to charity.

READER COMMENTS

Jonathan Monroe

Jul 23 2012 at 6:28am

You are ignoring the role of the IOC in choosing host cities. A city that proposed to run a LA-style games would not be selected nowadays. Architect’s drawings of single-use landmark buildings (at the very least, a new stadium) are a key part of a serious bid.

The reason why LA was able to do it was the financial disaster of Montreal meant that they were the only bidders.

In essence, the IOC uses the power of its brand to extract rents from host cities, which it then wastes on vanity construction projects.

David R. Henderson

Jul 23 2012 at 8:42am

@Jonathan Monroe,
Good point and well put. So, yes, in that sense, it almost has to be a financial loser.

Tom West

Jul 23 2012 at 9:39am

Actually, when I spoke about the tremendous costs, I was thinking about the cost to the country of training athletes for 4 years and sending a team rather than the hosting costs, which tend to be unbelievably high.

While training athletes has other beneficial effects as well, I sometimes wonder if the Olympics has no flags and no national anthems, just a celebration of the athletes themselves, what fraction of the government spending on high-end athletics would survive.

I do like your point that hosting a perfectly decent Olympics don’t have to be a financial disaster.

However, sometimes there’s no escape. Having avoided financial disaster by being rejected for the Olympics, Toronto is having to console itself with a mini-disaster by hosting the Pan-am games this year at an unbelievable cost for a games most people will barely realize exists… *sigh*.

David R. Henderson

Jul 23 2012 at 10:13am

@Tom West,Actually, when I spoke about the tremendous costs, I was thinking about the cost to the country of training athletes for 4 years and sending a team rather than the hosting costs, which tend to be unbelievably high.
But in the United States, at least, most of those costs are voluntarily borne. My understanding, but I may be wrong here, is that very little coerced funding is used. When people voluntarily spend their own money on funding athletes, I have no problem with that.

happyjuggler0

Jul 23 2012 at 12:17pm

My understanding of the accounting for the 84 LA Summer Olympics and the 2002 Slat Lake City Winter Olympics is that neither accounted for extra police costs and other costs for general public services.

Wikipedia mentions that the 84 games turned a profit, but they don’t address other unofficial costs.

Mike Rulle

Jul 23 2012 at 2:17pm

The reasons for hosting Olympics vary, China wanted to show off—so it built a massive Potemkin (mixing national metaphors) village.

Chicago, and most cities, wanted the Olympics because it is a great wealth transference scheme. The IOC is tranparently corrupt, but so are the politicians who want to drag these extravaganzas to their neighborhoods. Taxpayers “in general” pay, while various vendors, contractors, local businesses etc., “receive”.

The athletes are still amazing—-but the spectacle generally gives me the creeps.

Jul 23 2012 at 4:52pm

The L.A. Games were a blast, in part because they were done on the cheap. Southern California, a very sports-oriented region, already had lots of spartan but adequate facilities such as the Rose Bowl, Coliseum, Forum, Sports Arena, and Pauley Pavilion. These were cleverly dolled up by draping them with attractive fabric hangings in a novel “Festive Federalism” color scheme. That the organizers were using brains rather than billions of dollars to put on a good show only made 1984 Games more fun to attend.

MingoV

Jul 23 2012 at 6:00pm

Another money-losing factor is the high cost of security theater. The security for the London Olympics looks like something one would see at Evil Dictator’s Grand Palace during wartime.

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